US West said today it would enter into negotiations with Qwest Communications for a possible merger, following that company's second unsolicited takeover bid last week.

The Baby Bell, along with Frontier Communications, is the subject of a bidding war between Qwest and undersea cable company Global Crossing, each of which want to use the two companies to build an international network for high-speed data and voice communications.

Global Crossing had already signed an agreement to buy both companies. But Qwest stepped in early last month with its own all-stock bid, and sweetened its offer last week after a dramatic drop in its stock price undermined the value of its first bid.

Today's announcement sets in motion the next full act of the drama, in which US West and Frontier will sit down at the bargaining table with both companies in earnest. Frontier announced earlier this week that it too would begin talking to Qwest.

But US West's announcement carried with it a strategic twist that should buy it extra bargaining power, according to a source close to the company.

The company's original agreement to merge with Global Crossing contained a clause forbidding it to negotiate with any other suitor unless the new bid was clearly superior to Global Crossing's offer. But US West has won the permission of Global Crossing's management to sit down at Qwest's bargaining table without officially acknowledging that bid is financially superior, the source said.

This will allow the company to listen to both sides without being committed to one or the other on a financial level. US West remains responsibile to shareholders to accept the financially superior bid, the source said.

But the US West board of directors, led by chairman and company CEO Sol Trujillo, has earlier expressed concerns about other, non-financial objectives in the merger. In rebuffing Qwest's first bid, the company said it was worried about losing control of its long-term objectives in a merged company.

The Global Crossing deal, by contrast, is explicitly structured as a merger of equals, and Trujillo would retain a co-CEO title.

Qwest CEO Joseph Nacchio afterwards publicly tried to assure Trujillo that he would retain considerable sway over the new company, and said Qwest was committed to seeing through US West's Internet focused goals. In a later letter to shareholders, however, he hinted that he was willing to go directly to US West shareholders with his bid if Trujillo refused to agree to the merger.

In a short statement containing news of the upcoming negotiations, Trujillo said today that his board of directors "remains committed to acting in the best interests of US West shareholders and to its vision of building a next generation global data-centric company."

The value of both takeover bids has fluctuated considerably, with Wall
Street sending Global Crossing and Qwest shares sharply downward.

But at today's prices, Global Crossing's bid is worth a little more than
$56 per share for US West, well below the company's closing stock price of
$58.375.

Qwest's second bid, which has a "collar" or minimum bid level put in place
to guard against future stock declines, is worth about $69 per share.